David R. Duncan, Chief U.S. Bankruptcy Judge.
This matter comes before the Court on a Motion to Extend Time to File Objection to Debtors Discharge [sic] ("Motion") filed by creditor Twin City Fire Insurance Company, a division of the Hartford ("Twin City"), and the objection of Debtors Abbott Simon Estrin and Deborah Leah Estrin ("Debtors"). After careful consideration of the applicable law, arguments of counsel, and evidence submitted, Twin City's Motion is granted. Twin City has until March 8, 2015 to file a complaint objecting to the dischargeability of its debt pursuant to 11 U.S.C § 523.
The parties do not dispute the underlying facts relevant to this Motion. On or about July 12, 2013, Twin City filed a complaint with the federal court in the Central District of California against the Debtors and three other defendants. The complaint asserted various causes of action, including conspiracy and fraud, in connection with employment recruiting services provided by the Debtors and the other defendants.
On August 25, 2014, the Debtors filed for protection under chapter 7 of title 11 in South Carolina. A notice of the bankruptcy filing was sent to all scheduled creditors, stating that the § 341 meeting of creditors was scheduled for October 7, 2014, and that the last day to oppose discharge or the dischargeability of certain debts was December 8, 2014. Twin City is listed both in the Debtors' schedules and on the certificate of service for the notice.
On August 29, four days after the Debtors filed their bankruptcy, Twin City's counsel contacted the Debtors' attorney, Lauren Clark, and asked if the Debtors would consent to a non-dischargeable fraud judgment. On September 17, Twin City again attempted to contact Ms. Clark, inquiring as to whether she represented the Debtors with regards to potential dischargeability causes of action.
On October 8, 2014, Twin City attended the meeting of creditors. After the meeting, Twin City informed the Debtors that
On October 10, 2014, the United States Trustee filed a notice stating she was investigating the Debtors' case for abuse pursuant to 11 U.S.C. § 704(b)(2). The notice stated that the United States Trustee would file a motion or statement indicating whether she was seeking conversion and/or dismissal within 30 days. On November 4, 2014, the United States Trustee filed a statement stating that she was not seeking dismissal or conversion because of the Debtors' changed circumstances.
On November 13, 2014, Twin City again contacted the Debtors and asked if they would consent to lifting the stay so that Twin City could file a motion to transfer venue in the California litigation. The Debtors again refused and told Twin City it needed to file an objection to discharge.
On November 26, 2014, a week and a half before the deadline to file a nondischargeability complaint, Twin City filed this Motion.
The Debtors object to the Motion. The Debtors argue that Twin City's actions fail to establish cause for an extension of time
The Court held a hearing on the Motion on January 27, 2015. At the hearing, both parties provided the Court with argument and case law in support of their positions. The Court then took the matter under advisement.
The filing of a bankruptcy petition and the conclusion of the administration of the case generally provide debtors with a discharge of their pre-petition personal liability for debts. See 11 U.S.C. §§ 727(a); 1141; 1228(a); 1328. However, in accordance with the well-settled principle that bankruptcy relief is only available for the honest but unfortunate debtor, this discharge is subject to exceptions. Section 523 lists nineteen categories of debts that are nondischargeable. The procedures for determining whether a debt falls within these categories are provided for in the Federal Rules of Bankruptcy Procedure. Fed. R. Bankr. P. 7001 provides that proceedings to determine the dischargeability of a debt are adversary proceedings that require the filing of a complaint. Fed. R. Bankr. P. 4007(c) provides that complaints filed pursuant to § 523(c) "shall be filed no later than 60 days after the first date set for the meeting of creditors...." Section 523(c) includes those debts described under § 523(a)(2), (4) or (6), and encompasses the types of causes of action at issue here. Finally, Fed. R. Bankr. P. 4007(c) provides that this time limit may be extended for creditors that (1) file a request for an extension before the 60-day time period expires and (2) show cause.
Here, the parties agree that Twin City's request was timely filed; at issue is whether cause exists to extend the deadline.
The Bankruptcy Code does not define "cause."
Other courts, however, view the "cause" standard more liberally. These courts reason that because the Bankruptcy Code attempts to balance the interests of both debtors and creditors, a court should extend the deadline for cause if doing so "fosters rudimentary fair play and clean hands notions." Matter of Amezaga, 192 B.R. 37, 41 (Bankr.D.P.R.1996). These
The Court finds this latter view more persuasive. Both the Supreme Court and the Fourth Circuit have considered the Bankruptcy Rules applicable here, though not in a way that is dispositive of the ultimate issue. The Supreme Court has held that the Bankruptcy Rules governing objections to discharge are "claim-processing rules" rather than jurisdictional constraints, and thus may be subject to equitable defenses. Kontrick v. Ryan, 540 U.S. 443, 454-57, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004). The Fourth Circuit has held that these rules are subject to equitable defenses. Farouki v. Emirates Bank Int'l, Ltd., 14 F.3d 244, 248 (4th Cir.1994). Additionally, in Farouki, the Fourth Circuit noted that a court could exercise its equitable powers in "extraordinary circumstances" when a filing was untimely. Id. The general principles that the discharge and dischargeability rules are not strict jurisdictional bars and are subject to more flexible, equitable considerations when parties fail to comply with the rules suggest against the strict "compelling" standard when a party has complied with the rules. This Court therefore rejects the narrow interpretation of Rule 4007(c)'s "cause" requirement, and looks to those cases where courts have construed "cause" more liberally for guidance.
Courts taking the liberal view consider a variety of factors in their analysis, such as (1) whether the debtor has refused to cooperate with the creditor in bad faith; (2) whether the creditor has sufficient notice of the deadline and the information to file an objection; (3) whether the proceedings in a different forum will result in collateral estoppel on the relevant issues; (4) whether the creditor exercised diligence; and (5) the complexity of the case. Boltz-Rubinstein, 454 B.R. at 620 (citations omitted). Other courts summarize these factors as considering (1) whether granting the delay will prejudice the debtors; and (2) the length of the delay and its impact on efficient court administration. Id.
Here, while this presupposes no bad faith on the Debtors' part, the Debtors have not consented to an extension or otherwise cooperated with Twin City. Twin City's explanation that it was waiting to see if the case would be dismissed before pursuing its nondischargeability complaint relieves it of any taint that its actions were merely dilatory. Twin City credibly asserts that its primary goal in seeking an extension is to transfer venue and combine related litigation of liability on the underlying debt and issues of dischargeability rather than delay the administration of the Debtors' case. Twin City has consistently attempted to negotiate with the Debtors to have both the civil and bankruptcy proceedings tried in one place
Twin City did have notice of the deadline and could have filed its nondischargeability complaint prior to the deadline, and perhaps it should have done so. However, this is only one factor in the Court's analysis of cause. The remaining facts support extending the deadline so that Twin City may file its complaint. The facts central
Rule 4007(c)'s requirement of "cause" to extend the time to object to the dischargeability of certain debts should be not be interpreted too strictly. Twin City has met its burden proving that cause exists to extend the deadline. The motion to extend the time until March 8 for Twin City to object to the discharge of its debt is granted.
AND IT IS SO ORDERED.